Arbitration: Grounds for refusal to be raised by the court ex officio (Article V(2))

Article V(2) of the Convention provides:
“Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country ; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country.”
The grounds in Article V(2) protect the public interests of the State in which enforcement is sought and, accordingly, the court can rely upon them ex officio, following an application that has been made for recognition and enforcement of an award. Typically, the party resisting recognition and enforcement will also invoke these grounds when it believes that they are relevant.

In summary, the “not arbitrable” ground for refusal under Article V(2)(a) is available where the dispute involves a subject matter reserved for the courts.

For example, clearly criminal cases are non-arbitrable; similarly, cases reserved exclusively for the courts of a jurisdiction are non-arbitrable, including:
– divorce;
– custody of children;
– property settlements;
– wills;
– bankruptcy; and
– winding up of companies.
The modern trend is towards a smaller category of disputes being reserved solely to the jurisdiction of courts, as the result of a number of factors, including the trend toward containing costs, a greater openness of many courts to accept that the parties’ agreement to arbitrate should respected and the support of international arbitration by national legislation. In this respect it should also be noted that “not arbitrable” has a different meaning in an international as opposed to a domestic context

Whether a subject matter of an arbitration is non-arbitrable is a question to be determined under the law of the country where the
application for recognition and enforcement is being made. The nonarbitrability should concern the material part of the claim and not merely an incidental part.

Few cases of refusal of enforcement under Article V(2)(a) have been reported. These include:

– A decision by the Belgian Supreme Court that refused enforcement of an award on the ground that the subject matter concerning theCHAPTER III. 1.

– A decision by the Federal Arbitrazh (Commercial) Court for the Moscow District that found that a Slovak award was unenforceable because it had been rendered after the Russian respondent had been declared bankrupt by an arbitrazh court. Under the bankruptcy law of the Russian Federation, arbitrazh courts have exclusive jurisdiction over the determination of the amount and nature of a bankrupt’s claims against a debtor. The court actually framed its decision under Article V(2)(b) of the Convention as arbitrability may be considered as belonging to public policy. 2

Article V(2)(b) permits a court in which recognition or enforcement is sought to refuse to do so if it would be “contrary to the public policy of that country” .

However, Article V(2)(b) does not define what is meant by “public policy” . Nor does it state whether domestic principles of public policy, or public policy principles based on the international concept of public policy, should apply to an application for recognition and enforcement under the New York Convention. The international concept of public policy is generally narrower than the domestic public policy concept. As seen in this Chapter above at V.1, this distinction also applies to arbitrability.

Most national courts have adopted the narrower standard of international public policy, applying substantive norms from
international sources. The recommendations of the International Law Association issued in 2002 (the “ILA Recommendations” ) as to “Public Policy” are increasingly being regarded as reflective of best international practice.48

Among the general recommendations of the ILA Recommendations are that the finality of awards in ” International commercial arbitration should be respected save in exceptional circumstances” (Clause 1(a) of the General Section) and that such exceptional circumstances “may in particular be found to exist if recognition or enforcement of the international arbitral award would be against international public policy” (Clause 1(b) of the General Section).

Clause 1(d) of the ILA Recommendations states that the expression “international public policy” is used in them to designate the body of principles and rules recognized by a State, which, by their nature, may bar the recognition or enforcement of an arbitral award rendered in the context of International commercial arbitration when recognition or enforcement of said award would entail their violation on account either of the procedure pursuant to which it was rendered (procedural international public policy) or of its contents (substantive international public policy).

The ILA Recommendations state (per Clause 1(d)) that the international public policy of any State includes:

(i) fundamental principles, pertaining to justice or morality, that the State wishes to protect even when it is not directly concerned;

(ii) rules designed to serve the essential political, social or economic interests of the State, these being known as “lois de police” or “public policy rules” ; and

(iii) the duty of the State to respect its obligations towards other States or International Organizations .

1. Belgium: Cour de Cassation, First Chamber, 28 June 1979 (Audi-NSU Union AG v. SA Adelin Petit & Cie) Yearbook Commercial Arbitration V (1980) pp. 257-259 (Belgium no. 2).
2. Russian Federation: Federal Arbitrazh (Commercial) Court, Moscow District, 1 November 2004 (AO Slovenska Konsolidachna, A.S. v. KB SR Yakimanka) Yearbook Commercial Arbitration XXXIII (2008) pp. 654-657 (Russian Federation no. 15).

Author: international